Posted: 22 month(s) and 3 days(s) ago   |   7 Comment(s)   |   Rating: 0 0
Posted by: WallStNick

Today's Baltimore Sun had a great article describing various ways someone in their 20's can start saving for retirement. "Twenty somethings have an asset that can be more valuable than cash: time," the article stated.

The secret lies in compounded interest. A 25-year-old who starts saving $400 a month for 10 years, at a rate of 10 percent a year, can see a $48k investment grow to $911,736 by the time they're 60, said a Dallas-based financial planner. If that same 25 year-old waited until they were 35 to start saving, they would have to put away more than $1,000 per-year to see the same results.

Here are a few tips the article gave:

1. Start with your employer's 401(k). It makes saving easy because the cash comes directly out of your paycheck and into the investment account.

2. Consider a Roth IRA. Even though you don't get a tax break up front, you will never have to pay taxes on the money you invest--even the earnings--when you pull it out in retirement.

Be aggressive. In your 20s, you can afford to take risks--have a portfolio weighted heavily in stocks. The typical 2045 and 2050 target-date retirement funds, for example, will hold 90 percent or more of their assets in stock funds. If that's not an option for you, consider a global stock mutual fund that will hold shares in foreign and U.S. companies. "It's a good anchor fund," said one Atlanta financial planner.

Don't pay off student loans any faster than you have to. "The interest rate is probably low and [the interest] is probably tax deductable," said a financial planner with T. Rowe Price Associates. Instead, focus on paying down credit card debt, and building a cash reserve. Put your ash in a savings account. Check out bankrate.com for banks that pay higher interest rates.

Start saving today, so you don't have to start worrying tomorrow.

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